Accounting Policy & Practice Series
Mortgage Banking Activities and Mortgage-Backed Securities
Portfolio Description
BNA Tax and Accounting Portfolio 5208, Mortgage Banking Activities and Mortgage-Backed Securities (Accounting Policy and Practice Series), explains how to account for the origination or purchase of residential mortgage loans and either the sale of those mortgages to secondary market investors or the holding of those mortgages as investments. The Portfolio also describes the accounting for derivatives used to hedge these activities. Finally, it details the accounting for mortgage servicing rights.
The primary Statements of Financial Accounting Standards discussed in the Portfolio include:
No. 65, Accounting for Certain Mortgage Banking Activities (September 1982);
No. 114, Accounting by Creditors for Impairment of a Loan (May 1993);
No. 115, Accounting for Certain Investments in Debt and Equity Securities (May 1993);
No. 133, Accounting for Derivative Instruments and Hedging Activities(June 1998);
No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (September 2000), as amended by FAS No. 156, Accounting for Servicing of Financial Assets-An Amendment of FASB Statement No. 140;
No. 156, Accounting for Servicing of Financial Assets-An Amendment of FASB Statement No. 140 (March 2006); and No. 157, Fair Value Measurements (September 2006).
After introducing the origination of residential mortgages and their sale in the secondary market, the Portfolio discusses the accounting for derivatives used to hedge these activities, the accounting for nonrefundable fees and costs, the accounting for loans held for sale versus loans held for investment, and loan losses. The Portfolio then details the accounting for the securitization of residential mortgage loans, discussing the criteria for sales accounting of these transfers. Finally, the Portfolio discusses the subsequent accounting treatment of interest-only strips and the accounting for mortgage servicing rights.
This Portfolio may be cited as BNA Tax and Accounting Portfolio 5208, Betancourt, Johnson, and Nowakowski, Mortgage Banking Activities and Mortgage-Backed Securities (Accounting Policy and Practice Series).
Note: Various FASB documents, copyright by the Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT 06856-5116, U.S.A., are reprinted with permission.
Luis Betancourt, CPA, Ph.D., Accounting, University of Central Florida; MBA, Finance, University of Maryland; BS, Accounting, Salisbury State University. Betancourt is an Assistant Professor of Accounting at James Madison University. He worked in accounting policy at the Office of the Comptroller of the Currency and Freddie Mac. Betancourt has extensive teaching and training experience and has written for many publications, including Journal of Accountancy, and Advances in Taxation.
Christian A. Johnson, J.D., Columbia Law School; MA and BA, Accounting, University of Utah. Johnson is a Professor of Law at Loyola University Chicago School of Law. He teaches and has published on banking, corporate finance, and over-the-counter derivatives. Johnson co-authored BNA Tax and Accounting Portfolio 5112, Accounting and Disclosure for Derivative Instruments (Accounting Policy and Practice Series).
Sharon Nowakowski, J.D., Loyola University Chicago; BA, University of Illinois. Nowakowski practices law with Bryan Cave LLP, and was previously with ABN AMRO Bank. The opinions of authors expressed herein do not necessarily reflect those of Bryan Cave LLP or ABN AMRO Bank N.V.
Claude Edelson, CPA, MA and BS, Accounting, University of Illinois. Edelson is currently Assistant Director of Accounting Policy at the Federal Home Loan Bank of Chicago. He joined FHLBC in 2005 after working in the accounting policy field for a number of financial institutions for over 20 years.
